ESOP AND DEFERRED PAY-OUTS

ESOP 

Definition -

Employee Stock Option Plan (ESOP)/ Equity incentives are an option plan which is given to the employees by their company as a form of compensation or incentives.

Employee Stop Option Plan (ESOP) is a plan through which a company award Stock Options to the employees based on their performance. Under an ESOP, the employees have right to buy the shares of the company on a predetermined date at a predetermined price.

The basic idea to give employee stock options in early days was to save cash compensations. It was a way to motivate the employees and even to save cash reimbursements for some of the cash strapped companies. These plans are over and above the salary of the employee but not in monetary form directly. Later, the concept of motivation picked up and retention led to spread of ESOP across company verticals.

Different terms used in an ESOP :  

• Grant date: The date on which the company grants an option to its employee.

• Option price: The price at which such shares in a scheme in a scheme are offered. It is also known as the 'strike price' or 'grant price'. Normally such option price would be below the market value/fair value of the shares on the date of grant.

• Vesting date:  An ESOP would provide for a date on which an option is vested with employees and time frame over which the stock option would vest with employees ('Vesting period').

• Exercise period:  The employees would be given a time period, called exercise period, within which they are required to exercise the option. The date on which employees exercise this option is known as 'exercise date'.
• Create a Trust (Special Purpose Vehicle): Depending on the number of options to be given to the employees, the company will issue shares or options to the trust. The trust would need funds to buy these shares. For this, the company can either gift soft loans from its own funds or the trust can raise loans through other sources to meet its financial requirement.

Objectives of ESOPs

The objectives of ESOPs are as follows:

1. To make improvement in the individual and group performance 
2. Act as a retention tool
3. To bring the sense of commitment and belongingness
4. Maintain loyalty due to the factor of ownership
5. To create a vibrant culture of ownership
6. It is another form of reward or compensation

EMPLOYEE BENEFITS

Definition :-

Employee benefits in kind, (also called fringe benefits, perquisites or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries. 

Benefits are applied to items such as pensions, free refreshments, leisure activities on work time, holiday pay, insurance, and so on.

Objectives of Benefits : 

The benefits or services are provided to the employees in order to satisfy the human, social and  economic need perspectives. Thus, the important objectives are as follows:

• To improve and maintain sound employees relations 
• To promote welfare of employees 
• To motivate the employees by making them satisfied and identifying their unsatisfied needs
• To protect the employees from health and safety hazards
• To create the sense of belongingness among employees

Nature of Benefits :   

Organization provide different kind of services and benefits according to their need and policy criteria. Whether it is a basic payment or additional pay, the goals of both the employees and employers must be met.

TYPES OF EMPLOYEE BENEFITS

Whether it is a payment or the extra  offering both the  employer's and the employees objectives must be met. At the same time, Government legislations recommending such provisions should also be viewed critically. Organizations, therefore provide a variety of benefits and services as per their policy and need criteria. However, different people group these differently.

According to Dale Yolder and Paul D. Stadohar they are grouped as:

1. To secure employment by making the offers more attractive.
2. To protect the health of employees by offering health and leave payments.
3. To ensure old age and retirement plans so as to develop belongingness.
4. To encourage an individual to feel pride in doing something and being a part of the organization.

According to Robert H. Hoge they are grouped as:

1. Payment for time not worked such as weekly off payment, approved holiday payments etc.
2. Extra for extra time worked such as over time payment, extra shifts and special duty payment.

Types of Benefits :   

PERKS / BENEFITS:-  

DEFINITION :

Perks, as defined, are to encourage the employees to walk with his/her head lifted with smartness so as to motivate him/her and provide him/her the opportunities to earn more or to enhance his/ her loyalty to the organization by way of awards for continuing to work for the company. 

Perks for social justice:

In a society, an employees has to maintain the standard of  living and be able to project his/her worth and position. Therefore he/she must get a fair opportunity to earn and enjoy facilities, and be rewarded for being associated with that organization. These perks are:

• Over time payment for extra effort beyond duty hours
• Annual bonus for having been with the organization and being part of their annual earnings.
• Retaining allowance

Unemployment/ disability / accident compensation  

INCOME TAX ACT

Income Tax in India was imposed by Sir James Wilson of British Government in the year 1860, to recover from losses of 1857's revolution. Another Act was made  in this year 1886, which can be treated as permanent base for income tax system in India. This was amended several in 1863, 1867, 1871, 1873 and 1878.

In this year 1922, 'Central Revenue Boards' was established and Income Tax Act, 1922 was implemented with the help of this board. Direct Taxes Administration Enquiry Committee was appointed in the year 1958. In the year 1961, Parliament announced new Income Tax Act, which came into enforcement from April 1962. This Act was based on report submitted by Mahavir Tyagi in 1959.

Income Tax Act, 1922  

'All India Taxation Enquiry Committee' was consituted in the year 1921 to give suggestions for improvement of finance position Income Tax Act, 1922 was introduced based on the recommendation of this committee.

Salient Features of I.T. ACT, 1922:

1. To bring Income Tax and super-tax under single Act.
2. To Impose tax on the income earned in the previous year.
3. Tax rates are to be decided in Finance Act which is to be approved by parliament.
4. To establish Central Revenue Board.

Income Tax Act, 1961

Income Tax Act, 1922 was sent to review tax system by the Government of India to Law Commission in 1956. Law Commission submitted its report in the year 1958. The government also constituted a committee entitled 'Direct Taxes Administration Committee' under Chairmanship of Mahavir Tyagi in the year 1958. 

Types of Taxes   

There are basically two types of taxes, direct and indirect taxes.Direct taxes are collected by the government directly from the tax payer through levies such as income tax, wealth tax and interest tax.

Whereas indirect taxes are collected indirectly as a part of prices of goods and services on which these are levied. In our country, these comprise of excise duty, sales tax, customs duty value added tax. While direct taxes from 30 per cent of government's revenue indirect taxes contribute a large chunk of 70 per cent. Gift tax and estate duty were part of the direct tax revenue. As an on-going process of simplification and rationalization of the direct tax structure in India, the government repealed the Gift Tax Act in 1998 and the Estate Duty Act in the late eighties.

Direct Taxes: Income tax, Wealth tax, Gift tax etc.

Indirect Taxes: Excise, Customs duty, Sales tax etc.

  

              

Study with HRM: Concept of Job Analysis

Study with HRM: Concept of Job Analysis: JOB ANALYSIS  Job analysis (JA) is a process of identification and determination of the particular job duties, requirements and responsibili...

Concept of Job Analysis

JOB ANALYSIS 

Job analysis (JA) is a process of identification and determination of the particular job duties, requirements and responsibilities. In other words, it is the identification and description of what is happening on the job. It is an essential and pervasive human resources technique and the starting point for other human resources activities. Simply stated, job analysis is a formal and detailed examination of jobs. It is a systematic investigation of the tasks, duties and responsibilities necessary to do a job.  

Definition :

A duty is a larger work segment consisting of several tasks (which are related by some sequence of events) that are performed by an individual, for example, pick up, sort out and deliver incoming mail.

Factors Influencing compensation Strategies

Design compensation strategies involves determination of the hierarchy of grades, formulating a compensation structure, and finalizing the pay packages with the aim to attract and retain talented workforce. 

The external and internal factors that affect a compensation strategy are:

1. Individual factors 
2. Organisational factors 
3. Competitive factors 
4. Product cost factors  

Let's discuss each one in detail:

1. Individual factors - Organisations while designing compensation strategy consider employees concern about compensation worth. In designing the compensation strategy individual skill, knowledge, expertise, attitude, sex, work environment and experience play an important role in fixing the level of the job.

2. Organisational factors - Organisational learning depends on productivity of employees and their efficiency which marks the designing of compensation strategy. This measures the company's  ability to pay.

3. Competitive factors - The compensation strategy also depends on the mission and vision of the organisation. That means whether the organization is willing to lead, develop competitiveness or meet the changing environments.

4. Product cost factors - It is a process of converting the job price into a monetary award to the employee performing employee performing or going to perform that job. 

Compensation Professional's Goals

The prime duty of human resources management is to optimize the best use of human resources,and to encourage and motivate the employees to increase the effectiveness of their potentials, which helps the company to develop a competitive advantage. Compensation here plays an important role to make the  employees comfortable, energetic, enthusiastic and motivated to do their best for the organization. The figure below describes a model to understand the need of effective compensation management to meet this objective of any organization.

                             

Employer's and Employee's Objective  

Employer's Objectives :

The main objective of the employers is to acquire competent employees at reasonable costs to the company. Other objectives could be:

1. To justify the cost to the company through performance and productivity improvement
2. To comply with legal rules 
3. To boost the morale of the employees  

Employee's Objectives :  

The employee's objectives are aimed at equity-based compensation, fair evaluation of their worth, comfort at the work place and commitment of adequate cushion for inflation and better performance. 

Thus, the employee's objectives are:

1. To get equity based remunerations.
2. To satisfy their worth
3. To have cushion for price inflation.
4. To have security and welfare consideration.

Compensation and Organizational Objectives

The compensation system is designed to achieve certain objectives. Though the main objective of compensation management is to attract competent personnel, minimize the conflict, encourage the employees to perform better, and have a culture and policies to retain them, it aims at treating the employees as an asset to the organization and properly maintains them and keep satisfied.

The establishment of equity is an important objective of compensation management. However, the general objectives of compensation management are listed below.

• To attract and  acquire qualified and competent employees to meet the organizational objectives.
• To secure internal and external equity 
• To control the desired behavior of the employees
• To reduce conflicts and grievances

Every organization has a goal to accomplish and an urge to develop competitiveness, and therefore tries to acquire and retain the talents by designing and offering attractive compensations.

 

Compensation

Compensation is a key factor in attracting and keeping the best employees and  ensuring the competitive edge in an increasingly competitive world. Compensation and reward system play a vital role in a business organization. 

Compensation refers to the monetary rewards to an individual for the efforts he/she offers to any organization or institution.   

TYPES OF COMPENSATION 

The most common types of compensation are mentioned below:

• Base Pay 
• Variable Pay
• Benefits 
• Incentive

Base Pay : The base pay (the fixed salary or wage) that constitutes the basic rate for the job, which is fixed. It may be varied according to the grade of the job or, for manual workers, the level of skill required. Base pay will be influenced by internal and external relativity.

Base pay maybe expressed as an annual, weekly or hourly rate.

Variable Pay : Variable pay is non-traditional compensation method. Also known as 'at-risk' pay, as it is performance-based.It is can take various forms like a share in the profits, saved costs, individual and team incentives for attaining the set goals or lump sum awards.

Benefits : Benefits include pensions, sick pay, insurance cover, company cars and other 'perks'. They comprise of elements of remuneration additional to the various forms of cash pay and also include provisions for employees that are not strictly remuneration, such as annual holidays.

Incentive : It is the additional form of compensation that is directly linked with performance and paid over and above  the standard pay. Incentives can be tied to the performance of an individual employee, a team of employees, a total business unit, or some combination of individual, team and unit.